Assessing the necessity of accumulating £50,000 for financial comfort: Does your savings stack up to the norm for your age?
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Everyone should have an emergency fund to cover unexpected expenses, but how much should you save, and at what age? We've broken it down for you.
Age-specific Emergency Savings
Individuals in different age groups generally need to have emergency savings covering 3 to 6 months of their essential living expenses[1][2][3]. Here's a breakdown:
- Under 35: Recommended to have at least 3–6 months of essential expenses saved, starting with a minimum of $1,000 for emergencies. Average savings balances are around $20,540 but vary widely; many also start employer retirement plans at this age[1][3].
- 35 to 44: Should aim for 3–6 months of basic living expenses saved. The average 401(k) balance is around $103,552, indicating some longer-term savings habits but emergency funds still need focus[1][5].
- 45 to 54 and older: Same 3–6 months guideline applies, with potentially more savings needed if supporting dependents or facing higher costs. Average retirement savings grow with age but emergency funds remain critical for unexpected expenses[4][5].
Essential Costs vs Total Spending
When calculating your emergency fund, it's essential to consider your survival number—the minimum essential monthly costs you need to cover (rent, utilities, groceries, transportation)—not your total monthly spending including discretionary items[2]. For example, if your essential costs total $4,000/month, then you should aim to save between $12,000 and $24,000.
Current Savings Trends
- Couples living on their own have an average of 10 months' worth of essential spending saved[1].
- Almost two-thirds of people have built an emergency savings safety net[1].
- However, half of single people living on their own do not have enough emergency savings, and nearly three in ten single young adults do not have an emergency fund[1].
- More than half of renters do not have enough emergency savings[1].
- Savers over 60 need between one and three years' worth of essential spending in cash savings to cover costs[1].
- Those aged 60 and over need between £16,704 and £50,112 saved for one to three years' worth of essential costs[1].
Best Places for Your Emergency Fund
The best place for an emergency fund is an easy-access savings account or cash Isa. Look for an account that does not have sneaky restrictions on how often you can withdraw your money before the rate drops[1].
Health Issues and Emergency Savings
Those who have health issues are more likely to fall short on emergency savings, and three quarters of those in poor health do not have enough saved[1].
Household Emergency Savings
For households, the recommended amount of emergency savings varies between £6,186 and £12,327[1]. The average amount a household spends on essentials each month is £2,062[1].
Saving Habits by Relationship Status
Single savers manage to put aside an average of £301 per month, which is around half the £609 those in relationships are saving[1].
In conclusion, maintaining and reviewing your emergency fund annually or with life changes is advised to reflect your current essential costs and risk profile[3][4]. It's never too early or too late to start building your emergency fund.
References: [1] MoneySavingExpert, (2021), Emergency Funds, [online] Available at: https://www.moneysavingexpert.com/savings/emergency-funds/
[2] Bankrate, (2021), How much should I save for an emergency fund?, [online] Available at: https://www.bankrate.com/finance/savings/emergency-fund-savings-goal/
[3] Financial Conduct Authority, (2021), Managing your money, [online] Available at: https://www.fca.org.uk/consumers/consumer-topics/managing-money
[4] Money Advice Service, (2021), Emergency savings, [online] Available at: https://www.moneyadviceservice.org.uk/en/articles/emergency-savings
[5] Investopedia, (2021), How Much Should You Save for an Emergency Fund?, [online] Available at: https://www.investopedia.com/terms/e/emergencyfund.asp
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